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Compute the current price of a stock using the Discounted Dividend Model (DDM) if Required rate...

Compute the current price of a stock using the Discounted Dividend Model (DDM) if

  • Required rate of investment/market capitalization rate (kc)=14%
  • Dividend paid at year 1 (D1)= $32
  • Predicted stock price for next year (P1)= $120.00
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Answer #1

Present stock price = Present value of dividend + present value of stock price = 32 / 1.14 + 120 / 1.14

= 28.07 + 105.26

= 133.33

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